The Rise of the “Petroyuan”
The Rise of the “Petroyuan” by,
TDC Note – As we noted in August this year, the petroyuan started out on solid footing and has followed the projection lines we discussed. Given another year, say mid to late 2019, and this same movement continues, the petrodollar will be in serious trouble. The idea of a “dollar collapse” will simply vanish as the Federal Reserve Note will morph into a local, U.S. only, currency which will no longer affect global trade. It will no longer be part of the global landscape as countries continue to slowly and steadily move towards other global trade scenarios, like the petroyuan, direct currency swaps and possibly even some gold re-entering the global market.
For the past decade, China’s strategy for internationalizing the renminbi has involved greater reliance on the IMF’s Special Drawing Rights as an alternative international reserve currency. But the launch of renminbi-denominated oil trading this year suggests that China will now pursue de-dollarization head-on.
SYDNEY/ITHACA – It is now just ten months since China launched its oil futures contract, denominated in yuan (renminbi), on the Shanghai International Energy Exchange. In spite of forebodings and shrill alarms, the oil markets continue to function, and China’s futures contracts have established themselves and overtaken in volume terms the dollar-denominated oil futures traded in Singapore and Dubai.
Of course the volume of trades on the Shanghai INE still lags behind that of the Brent oil contracts traded in London and the West Texas Intermediate oil futures traded in New York. The Chinese oil futures contract is, however, being taken seriously by multinational commodity traders (like Glencore) and is priced in a manner that is comparable to the Brent and WTI indices. As we argue in The Asia-Pacific Journal, these results suggest that China’s oil futures could bring the renminbi to the core of global commodity markets.